Skip to main content

What is financial statement, its benefits, its uses and its types.


Definition=

Financial statements shows all the records of financial activities of the business or the company which explains the position of the business or the company.
Financial statements are that type of documents which shows all the details related to finance including debit details and credit details.

User Types=
Generally there are two type of users who require financial statements.

Internal users: Internal users involves members from inside the business for example these members includes Managers, Officers and Internal Auditors etc.

External users: External users involves users from outside the business. Which are not working members of the business as internal users are for example shareholders, Lenders, customers, etc.

Financial statement Benefits=
The main benefit of financial statements is that this provide financial data of the business which is useful for both internal and external users.

For internal users it is required because managers use it to make decision for business activities and internal auditors use it to examine frauds and errors which may changes the financial position of business.

For external users its main benefit is to know about financial position in order to know their return percentage whether their investment in shares in that business has been proved fruitful or not and it is also useful for those external users who are planning to invest in any business.

Growth of the business can be measured with the help of financial statements.

All the businesses prepare financial statements to manage their finance to know whether the business is in good condition or in bad condition which means whether it’s generating enough profit or generating loss.

Financial statements Uses and Types=
There are four types of financial statements
  • Income statement uses to find out income of the business.
  • Statement of financial position uses to find out the financial position of the business.
  • Statement of cash flow explains the inflow and outflow of cash of the business.
  • Statement of changes in equity explains the movement of equity like increase or decrease in share capital, dividend payments etc.

      However beside the above types there are also some other types which are widely used to analyze       financial statements by following ways:
  • Classical financial statement= In this type certain characters of financial statement group together which results in meaningful subtotals and can be understand by readers having financial knowledge.
  • Comparative financial statement= This type of statement helps the viewers and readers to examine financial information of the business of two years which shows comparison of last year financial statement and current year financial statement. It also helps to measure the trends and change in the business to know the business position better.
  • Consolidated financial statement= It is used to get the knowledge and information of parent and subsidiary which also helps to know that these two companies are single unit and working together.



Labels

Labels:

Comments

  1. Shadhin Kangal25 October 2016 at 07:01

    Income Statement shows net profit or net loss arising out of activities of a particular accounting period of any business organization.

    ReplyDelete
  2. Athiambiwied7 March 2017 at 23:24



    Great post. Thank you for sharing your tips!!!


    Northrise Accountants

    ReplyDelete

Post a Comment

Popular posts from this blog

Difference between Downsizing and Reengineering with real life example

Explain difference between Downsizing and Re-engineering with real life example? Downsizing = Downsizing is used to reduce the size in order to improve its financial performance, usually by laying off employees.Businesses use several techniques in downsizing, including providing incentives to take early retirement and transfer to subsidiary companies, but the most common technique is to simply terminate the employment of a certain number of people. Downsizing often takes place as part of a larger restructuring program at a company. Although it's usually thought of as a strategy companies use to become smaller, downsizing can also be the result of company mergers, acquisitions, and takeovers.Its most common form comes in employee layoffs, which reduce payroll costs for the company. Downsizing may also involve shuttering some operations or offering certain employees early retirement. Downsizing is typically seen during economic downturns in order to improve efficienc...
5 comments
Read more

What are the Crosby’s 14 Steps Work.

The 14 Steps of Crosby are following. 1. Management Commitment= It is necessary to consistently produce quality products and services at the optimum price. This commitment must also be transparent to all employees for the prevention of defects in all the operating departments. 2. Improved Quality= Search for team members who will model quality improvement commitment, every function of an operation must contributes to defect levels, every function must participate in the quality improvement effort . The quality improvement team should be able to effectively commit themselves to improvement of quality. 3. Measuring the Quality= Firstly you have to know exactly where your products and services lie when it comes to conforming to requirements. Thus, the third step on Crosby's list is to measure quality. Determine where there is room for improvement and where potential for improvement exists. 4. Cost of Quality= Explain how the cost of quality figures into the overal...
1 comment
Read more

Discuss national income and Gross domestic product effect on national income.

Discuss national income and Gross domestic product effect on national income. Before we start to explain let’s take a look on closed and open economy In a closed economy, all output is sold domestically, and expenditure is divided into three components: consumption, investment, and government purchases. Y = C + I + G In this equation Y is the total output, C is the total consumption, I is the total investment and G is the total government expenditure. In an open economy, some output is sold domestically and some are exported abroad.                                                                   Y = C + I + G + NX In the above equation each word stands for is following: Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX) Consumption : The spending by households on goods and services, with the exc...
Post a Comment
Read more